ASX shares that offer a good dividend yield could be very attractive if they are also defensive. Real estate investment trusts (REITs) could be a useful sector to hunt in.
Commercial properties can generate a very consistent and resilient level of rental income and cash flow, allowing them to fund distributions to investors.
Not every REIT is super-defensive, there are some sectors that have faced challenges in the last few years, such as those based on office buildings or focused on shopping centres.
I'm going to talk about two defensive REITs that could be very attractive for income-focused investors with good dividend yields.
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Charter Hall Long WALE REIT (ASX: CLW)
I think this is the most diversified REIT on the ASX because it's invested across a variety of sectors. In terms of exposure, that includes hotels, government-tenanted offices, data centre and telecommunication exchanges, service stations, grocery and distribution, food manufacturing, waste and recycling, and other areas.
The business said that it has a weighted average lease expiry (WALE) of 9.7 years and an occupancy rate of 99.8%. In other words, nearly all of its portfolio is leased, and that rental income is locked in for almost a decade, on average.
This ASX share continues to grow at a solid rate. In the FY25 half-year result, its like-for-like property income growth was 3.5%.
If interest rates in Australia continue to decline over time, I think the Charter Hall Long WALE REIT unit price, rental profit and distribution could increase.
Charter Hall Long WALE REIT is expecting to pay a distribution per unit of 25 cents in FY25. That means the distribution/dividend yield is projected to be 6.8%.
Rural Funds Group (ASX: RFF)
Rural Funds is a fairly unique REIT because it's focused on agricultural properties. Its portfolio includes cattle, almonds, macadamia, vineyards and cropping. This REIT has 64 properties across those five agricultural sectors and multiple climatic zones.
This business also has a very long weighted average lease expiry as well – it was 13 years in the FY25 half-year result.
The ASX share is benefiting from ongoing rental growth through a mix of lease indexation mechanisms and market rent reviews.
Rural Funds has some unleased assets within the business that continue to be developed and give the business likely upside for rental growth in the foreseeable future.
It's expecting to pay a distribution per unit of 11.73 cents in FY25, which translates into a distribution/dividend yield of 6.75%.
